Stock market rally boosted by promising vaccine results

The Wall Street sign is pictured at the New York Stock exchange (NYSE) in the Manhattan borough of New York City, New York, US, Mar 9, 2020. REUTERS

Many of the world’s economies have begun to loosen restrictions on commerce, the Federal Reserve chair Sunday signalled that the central bank has more firepower to lend to recovery efforts and a drugmaker reported positive developments in an early trial of a coronavirus vaccine.

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Taken together, the developments triggered a surge in global stock prices and other financial markets Monday. The S&P 500 rose more than 2% in early trading, recouping an entire week’s worth of losses. Stocks in Europe were 3% to 4% higher.

The rally had already begun before drugmaker Moderna said its coronavirus vaccine showed promising early results in tests on humans. The early-stage tests were on just eight people, but the hope that a vaccine might be quickly developed was enough to lift stock prices even further. Moderna’s stock was up 15% in early trading.

Also bolstering markets was a pledge from Jerome Powell, the Fed chair, that there was “really no limit” to what the central bank could do with its emergency lending facilities.

“The one thing I can absolutely guarantee is that the Federal Reserve will be doing everything we can to support the people we serve,” Powell said during a television interview broadcast Sunday.

The Fed chair suggested that the worst economic readings were yet to come, even as states begin to gradually reopen. He said that he expected “a couple more months” of job losses and acknowledged that the unemployment rate, which hit 14.7% in April, could peak at 20% or even 25%.

Still, Monday’s rally had all the characteristics of one focused on the prospects for a return to normal. Travel stocks, like United Airlines, Expedia Group and Marriott International, were among the best performers in the S&P 500 — rising as much as 10%.

Reflecting optimism about the economy, oil prices were higher, with West Texas Intermediate, the US standard crude, rising above $30 a barrel for the first time since March, and government bond prices fell.

Investors were looking for silver linings as the world grapples with lockdowns and other restrictions. Japan released economic figures Monday that showed the world’s No. 3 economy formally fell into recession, but Tokyo has begun easing some of its containment efforts. Some restrictions have also been lifted in parts of Europe and the United States.

Last week, the S&P 500 had its sharpest weekly drop since late March, a 2.2% retreat that stood out after a long stretch in which stock investors seemed willing to look past the deeply negative outlook for the economy and the uncertain path of the pandemic.

Here’s the business news to watch this week.

It’s a big week for retail earnings, with Walmart and Kohl’s reporting Tuesday, Target and Marks & Spencer on Wednesday, and Best Buy and TJX on Thursday. Amazon set a high bar a few weeks ago, reporting a 26% jump in first-quarter sales.

Powell and Treasury Secretary Steven Mnuchin are to testify Tuesday at a virtual hearing of the Senate Banking Committee, giving updates on coronavirus stimulus measures.

The June futures contract for West Texas Intermediate crude oil expires Tuesday. When that happened last month, oil prices plunged into negative territory. Traders don’t think that will happen again.

What’s next for L Brands? The parent of Bath & Body Works unexpectedly walked away from a deal this month to sell a majority stake in Victoria’s Secret. It will face questions about its Plan B on its earnings call Wednesday.

During lockdowns, people are doing more repairs, remodelling and intense cleaning than before; Home Depot and Lowe’s quantify the impact of that in their latest earnings Tuesday and Wednesday, respectively. Moving is tricky these days, and data on housing starts (Tuesday) and existing home sales (Wednesday) are expected to show steep declines for April.

— The National People’s Congress gets underway in Beijing on Friday, two months later than expected. Responding to the pandemic and rebutting criticism of China’s initial response is expected to dominate the proceedings. In corporate news, the Chinese e-commerce behemoth Alibaba is to report its latest earnings on the same day.

The Japanese economy enters its first recession since 2015.

Japan fell into a recession for the first time since 2015, as its already weakened economy was dragged down by the coronavirus’s impact on businesses at home and abroad.

The world’s third-largest economy after the United States and China shrank by an annualised rate of 3.4% in the first three months of the year, the country’s government said Monday.

That makes it the largest economy to officially enter a recession, often defined as two consecutive quarters of negative growth, in the coronavirus era. Other major economies around the world are set to follow, joining Japan as well as Germany and France in recession, as efforts to contain the outbreak ripple around the globe. The experiences of China, where the outbreak first emerged in December and January, suggest recovery will be long and difficult.

“The economy entered the coronavirus shock in a very weak position,” said Izumi Devalier, chief Japan economist at Bank of America Merrill Lynch, but “the real big ugly stuff is going to happen in the April, June print. It’s going to be three quarters of very negative growth.”

Apple plans to reopen some stores this week but will require distancing and masks.

Apple plans to reopen several stores this week in the United States, Canada and Italy, another sign of the gradual return to business across the world.

In March, Apple closed more than 450 of its stores — nearly every location outside of China — to combat the spread of the coronavirus. The company recently started to reopen shops in South Korea, Australia and Austria.

Now Apple is planning to add another 25 stores in the United States, 12 in Canada and 10 in Italy to its list of reopenings this week. The US stores are in California, Florida, Oklahoma, Hawaii, Colorado and Washington state, although some stores in those states will remain closed. Likewise, Apple is keeping 17 stores in Canada and seven stores in Italy closed.

Apple has set limits on the number of people inside its stores and requires social distancing. Apple Store employees are checking the temperatures of their colleagues and customers at the door and requiring everyone to wear face masks. Customers who don’t have a mask are given one.

Catch up: Here’s what else is happening.

The chief executive of Hertz, the century-old car rental company now at risk of bankruptcy, has resigned, the company said Monday. The company’s fate may be decided this week: It has until Friday to come up with a plan to pay back its lenders and continue to meet its ongoing financial obligations.

Consumer spending on video games, hardware and accessories surged to a record $10.86 billion in the first quarter of 2020, an increase of 9% compared with the same period last year, according to data from the NPD Group. Millions of Americans sought distractions while being ordered to shelter in place. Games such as “Animal Crossing: New Horizons,” “Call of Duty: Modern Warfare” and “Doom Eternal” were top titles, and the Nintendo Switch console was a strong seller.